Last Thursday, federal prosecutors charged two former stockbrokers (and recent law grads), Thomas Conradt of Denver and David Weishaus of Baltimore, with running an insider trading scheme. The nitty gritty of the details can be found in the complaint here.
Where did they get this information? A friend of a friend. A lawyer.
A new associate at Cravath, Swaine, & Moore was assigned to the Mergers & Acquisitions Practice Group, though he had little experience in that area. The associate was thrilled. He knew it meant big things for his career. But he was nervous and anxious about the prospects and the pressure. He needed someone to talk to. So he turned to one of his “best friends,” an Australian Equities Analyst. This “best friend” was “The Source” and roommate of one of the two stock brokers charged with the insider trading scheme. From the complaint:
The Associate sough moral support, reassurance, and advice from his friend, the Source…in connection with the discussion of the importance and magnitude of the assignment, the Associate disclosed to the Source material, nonpublic information about the proposed transaction, including the anticipated transaction price and the identities of the acquiring and target companies.
Based on, among other things, their history, pattern, and practice of sharing and maintaining confidences, the Sources’ sophistication as a professional in the securities industry, and the Source’s knowledge of the Associate’s position at the Law Firm, the Associate expected the source to maintain this information in confidence and to refrain from trading on this information or disclosing it to others.
…the first business day after the Associate disclosed the inside information to the Source, the Source attempted to purchase common SPSS common stock.
Oops. Best friends is all well and good, but that pales in comparison when there is money to be made. Especially off of sweet inside information. A guaranteed gold mine. Sure it was told to you in confidence, but that’s not really a problem if you are willing to bend your ethics and morals for the sake of making money. Who wouldn’t do that?
But the Source got nervous. Maybe he had a tinge of a guilty conscience. So he met with his Associate friend and confessed. The Associate was outraged and demanded that the Source sell off the stock immediately.
So this Source did so. Well most of it. He kept 500 shares because it was just too good to pass up. Oh and the Source forgot to tell the Associate that he had told his stock broker roommates about it too. What did the stockbrokers think of the potential consequences of their trading on material, nonpublic information?
Weishaus: we should get [RR3] to buy a fuckload
Conradt: jesus don’t tell anyone else
Weishaus: like, [RR3] buy 100000 shares
Conradt: we gotta keep this in the family
Weishaus: dude, no way
i don’t want to go to jail. fuck that.
Conradt: jesus christ
Weishaus: martha stewart spent 5 months in the slammer
Conradt: does [a friend] know?
Weishaus: and they tried to fuck the mavericks owner
Conradt and Weishaus were nervous at first and bought shares in small amounts. But over the course of a few weeks, greed won out:
Conradt: i got no options. wtf, I’m setting this deal up for everyone
Conradt: makin everyone rich
Weishaus: [a second friend] is gonna put in 50k. sept options
Conradt: holy fuck
Weishaus: i tlaked [sic] to him last night
Conradt: god [the Source] told me not to tell anyone
Conradt: big mistake
Weishaus: eh, we’ll get rich
Conradt: in any case
i’m just glad to contribute actually.
you guys have done a lot for me
i didn’t think for a second i wouldn’t tell you
Weishaus: this is gonna be sweet we just need this thing to pop next week
or im out
Conradt: it’s gonna blow up
Weishaus: yeah, we’re just time strapped
anywya [sic], lets not type
Eventually the trades placed resulted in over $1 million in gains. All because a new associate was stressed out. Or maybe want to share. Or brag to his friends.
But Secrets Are The Epitome of Cool.
Lawyers have a duty to keep the secrets of their clients. This can often be a burden. Lawyers often know things that no one else can know. Lawyers, like priest and doctors, are privileged to know things about their clients no one else can know. Deep secrets, dark truths, valuable knowledge. But along with the the privilege of knowing this information, is the subsequent duty to keep it safe. To keep it private and secure, away from others.
This duty, this burden, is not a game. It is not for your own personal profit. It isn’t to be used to impress your friends and curry favor. It is not for the lulz. The ability to keep your clients secrets safe is a fundamental duty of all lawyers. Take note, new associates, of the consequences for failing to do so. Ignore it at your peril.